Wall Street closed out its first two-week gain in almost a year Friday barely. After a mixed start, stocks veered lower in the afternoon as financial stocks fell and investors collected profits from the advance that saw the Dow rise 14 percent over seven trading days. One reason for the market's pause: It simply ran out of upbeat economic and corporate news the past two days.
The major indexes did eke out a gain for the week, jolted by the Fed's plans to buy hundreds of billions of dollars worth of debt securities in hopes of reviving lending. Stocks initially jumped on Wednesday when the plans were announced but then fell Thursday and Friday as investors became concerned that the huge injection of money into the economy could cause inflation.
Other markets had a tumultuous week as well. In just two days, the dollar fell 5 percent versus the euro and 3 percent versus the yen, and oil prices soared 7 percent Thursday above $51 a barrel to the highest level this year.
Many analysts believe stocks were due for some retrenchment.
"You get a run-up like that you're going to get a pullback," said Doreen Mogavero, president of the New York floor brokerage Mogavero, Lee & Co.
The Dow industrials fell 122.42, or 1.7 percent, to 7,278.38.
Broader stock indicators also lost ground. The S&P 500 index fell 15.50, or 2 percent, to 768.54, and the Nasdaq composite index fell 26.21, or 1.8 percent, to 1,457.27.
The Russell 2000 index of smaller companies fell 13.15, or 3.2 percent, to 400.11.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange. Consolidated volume came to 7.5 billion shares compared with 8.8 billion shares traded Thursday.
For the week, the Dow rose 0.8 percent, its first back-to-back weekly increase since the period ended May 2, 2008.
The S&P rose 1.6 percent, its first two-week gain since December, and the Nasdaq added 1.8 percent for the week.
The stock market began to rally off of 12-year lows beginning two weeks ago after several banks reported being profitable in the first two months of the year. Even after Thursday's retreat, the Dow was up 13 percent from its lows, and the Standard & Poor's 500 index was up nearly 16 percent.
The question now is whether there will be enough good news in the coming days to maintain the rally.
Michael Binger, portfolio manager at Thrivent Investment Management in Minneapolis, said the market's overall move is signaling that the economy is hitting bottom. He said it shouldn't be too difficult for stocks to resume their climb because expectations have fallen so low.
"I think the stock market is saying that fourth quarter of 2008 and first quarter of 2009 may be the trough in negative news," he said.
Bill Stone, chief investment strategist at PNC Wealth Management, said a retreat in financials wasn't surprising because they had jumped 60 percent from their lows in such a short time. "We had gone from way oversold to slightly overbought," he said.
Stone said investors' desire to lock in some profits as a rally gets going is typical of a bear market, generally defined as a fall of at least 20 percent from a peak.
Bond prices slipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.64 percent from 2.60 percent late Thursday. The yield on the three-month T-bill rose to 0.19 percent from 0.18 percent.
The dollar rose against other major currencies. Gold prices slipped.
Analysts have remained cautious about the market's rally, having seen other big advances crumble in the past year. From late November until early January stocks rose 20 percent only to fall to new lows as fears grew about the health of the nation's biggest banks and prospects for the economy.
Market veterans say some skepticism among investors is healthy. They are reassured by the step-stool approach the market has shown in recent weeks as big gains are followed by more modest moves. That gives traders time to make more reasoned assesments without simply diving into a market for fear of missing a big rally.
Investors also expect some money managers to do some buying with the March 31 end to the first quarter approaching. Stock prices are still seen as very cheap; the major indexes are still down by about half from their highs in October 2007.
Still, there are plenty of analysts who say the underpinnings of the economy remain too weak to justify a sustained recovery. The unemployment rate stands at 8.1 percent, its highest level since the wrenching recession of the early 1980s, and businesses and consumers are struggling to pay down debt. Many consumers who aren't hurting are still cutting back, fanning worries that the economy will only continue to shrink.
"All of these bounces in the last two years have run on emotion and this one has been no different," said Brian F. Reynolds, chief market strategist at WJB Capital Group.
Reynolds contends the sharp rallies after heavy bouts of selling trick investors into believing a recovery is at hand. "We bounce so hard off the bottom for these rallies that it just sucks people in because they want to believe," he said.
Some investors have still bought into the latest rally. As of midweek, investors had funneled $12 billion over the prior seven days into mutual funds that focus on U.S. stocks. That compares with $14.3 billion they pulled from these funds a week earlier, according to TrimTabs Investment Research.
Overseas, Britain's FTSE 100 rose 0.7 percent, Germany's DAX index rose 0.6 percent, and France's CAC-40 rose 0.5 percent. Japan's stock market was closed for a holiday.
The Dow Jones industrial average closed the week up 54.40, or 0.8 percent, at 7,278.38. The Standard & Poor's 500 index rose 11.99, or 1.6 percent, to 768.54. The Nasdaq composite index rose 25.77, or 1.8 percent, closing at 1,457.27.
The Russell 2000 index, which tracks the performance of small company stocks, rose 7.02, or 1.8 percent, to 400.11.
The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended at 7,801.33, up 125.39, or 1.6 percent, for the week. A year ago, the index was at 13,336.42.
Copyright 2009 The Associated Press.